You are a staff accountant of Rosen Accounting firm, and your team is responsible for providing financial reporting services to Horizon Corp., a new client of your firm. In reviewing the preliminary comparative financial statements of 2021 provided by Horizon, your team finds that the company has consistently used the tax basis (CCA) method to calculate depreciations for financial reporting until 2021 by mistake. The major reported numbers in financial statements of year 2020 and 2021 that are affected by this error are presented below:

	2021	2020
Accumulated depreciation	(23,761,000)	(22,946,000)
Deferred tax assets	225,000	234,000**
Operating expenses	19,540,000	18,411,000
Income tax	1,480,500	1,906,800
Net income	3,454,500	4,449,200
**please note that the deferred tax asset of $234,000 at 2020 year-end is only due to deductible temporary differences before 2020.

After being informed about this issue, Horizon decides to switch to the straight-line (SL) method to calculate depreciation expenses for financial reporting purpose for years prior to 2021 and going forward and entrusts your team to help correct this error in financial reporting. For that purpose, you first calculate the excess of CCA-based over the SL-based depreciation expense for the affecting years as follows: $103,950 for 2021; $106,050 for 2020; and $1,365,000 for periods prior to 2020. Then your team leader asks you to calculate the correct amounts of the following items that should appear on the comparative (2020 and 2021) financial statements of Horizon: 

(1) Accumulated depreciation; 

(2) Deferred tax asset/liability; 

(3) Operating expenses; 

(4) Current income tax expense; (5) deferred tax expense or benefits.

Horizon’s income tax rate is 30% and Horizon follows IFRS

Answer rating: 100% (QA)

1 The correct amount of accumulated depreciation for 2021 would be 23865950 23761000 103950 The corr... View the full answer